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Insight | Time: Aug 26 2020 4:22PM
Dissolving pulp price may periodically touch bottom
 
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Imported hardwood dissolving pulp price has been staying around $610/mt for consecutive two months after falling to that level in Jun and traded price moved lower during the period, but the decline was limited. Dissolving pulp price is likely to stabilize and slightly bounce up with the coming traditional peak season of textiles.



Bulls:
1. Pulp and paper market performs well in peak season as white card paper is quoted up by 500-1,000yuan/mt. Bleached hardwood and softwood paper pulp respectively gains $10/mt and $15-20/mt and the higher price for the latter touches $580/mt, obviously pushing up the opportunity cost of dissolving pulp producers. Paper pulp futures market in China also gains big increase as below.



2. More pulp mills will shut units for maintenance during the third and fourth quarter. As far as we know, large-scale companies who are running steadily in the first half of 2020 like Sodra, Sappi and Hunan Juntai generally have month-long maintenance around Oct. However, North American and other Chinese suppliers have largely cut and suspended production or converted to paper pulp. Moreover, Finland and Chile’s new capacities are still being confirmed and it is uncertain whether the supply can advance rapidly.

3. Due to the influence of COVID-19 outbreak, US dollar as safe-haven currency whose index overtook 102, but it started to weaken as the pandemic was not effectively controlled in the US and US dollar index has dropped to 92-94 in Aug. World dissolving pulp is mainly traded in USD terms and falling US dollar index would reduce the profit of many non-US producers under the same USD price term. Such reduction will definitely lower the acceptance of pulp mills at current price when dissolving pulp producers in north hemisphere mostly suffer losses at present.



Bears:
1. There are worries over resurgence of COVID-19 in autumn and winter.

2. There is minor improvement of seasonal demand in downstream segment, but VSF plants are generally fulfilling orders signed at low prices coupled with heavy losses and they are running with lower operating rates without strong buy interest of dissolving pulp. Moreover, the confidence towards demand in the fourth quarter has not been built yet.

3. Paper pulp price has rebounded somewhat, which is partly driven by seasonal demand, but market participants are not fully confident about the persistence of strong paper pulp with the end of autumn.

It is the traditional peak season of consumption around Sep and there will be obvious improvement versus Jul and Aug, although it cannot resume to the level in the same period of past years. The consumption of paper-related products and processing of apparels will speed up. The maintenance of pulp units may lead to brief tightness of supply, which may boost pulp market in the medium and short term. However, demand in the fourth quarter is still hard to be positive and new pulp lines are expected to keep steady operation during the period with cargoes entering Chinese market, so there is no strong confidence from participants. We estimate that dissolving pulp will warm up periodically, but the increase may largely depend on whether paper pulp will be further picked up in Sep.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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